How to calculate gross profit
Gross profit = Revenue − Cost of Goods Sold (COGS). Revenue is your total sales for the period; cost of goods sold is the direct cost of producing or acquiring what you sold, such as materials, stock, or direct labour. For example, £50,000 of sales with £32,500 of cost of goods sold gives a gross profit of £17,500.
Gross profit margin expresses that profit as a percentage of revenue (17,500 ÷ 50,000 = 35% in the example above), which makes it easy to compare profitability across different sizes of business or different periods. Markup does the same thing but as a percentage of cost instead of revenue, which is often more useful for pricing decisions.
Gross profit vs. net profit
Gross profit only deducts the direct cost of goods sold. Net profit goes further, also deducting overheads like rent, salaries not tied directly to production, marketing, interest, and tax. Gross profit tells you how efficiently you produce or source what you sell; net profit tells you what's actually left as bottom-line profit once every cost is accounted for. This calculator covers gross profit only.
What counts as cost of goods sold?
Costs directly tied to producing or acquiring what you sold: raw materials, components, stock bought for resale, and direct labour involved in production or delivery. It generally excludes indirect overheads like office rent, marketing spend, and admin salaries, which are business expenses rather than a direct cost of the goods themselves, and are deducted later to reach net profit.
Margin vs. markup: what's the difference?
Gross margin is gross profit as a percentage of revenue (selling price); markup is gross profit as a percentage of cost. They describe the same £ profit measured against two different bases, so they're never equal except at 0%. A £40 profit on a £100 sale with £60 cost is a 40% margin but a 66.7% markup on that £60 cost. Mixing the two up is a common source of pricing mistakes, so this calculator shows both side by side.
Example gross profit calculations
These worked examples come straight from the calculator above, so the figures match exactly what you'd see entering the same numbers yourself.
Retail resale
£50,000 revenue · £32,500 COGS
- Gross profit
- £17,500
- Gross margin
- 35.0%
Service business
£80,000 revenue · £16,000 COGS
- Gross profit
- £64,000
- Gross margin
- 80.0%
Manufacturing
£250,000 revenue · £175,000 COGS
- Gross profit
- £75,000
- Gross margin
- 30.0%
Break-even on cost
£40,000 revenue · £40,000 COGS
- Gross profit
- £0
- Gross margin
- 0.0%
Frequently asked questions
What is the formula for gross profit?
Gross profit = Revenue − Cost of Goods Sold (COGS). Revenue is your total sales for the period, and cost of goods sold is the direct cost of producing or acquiring what you sold, such as materials, stock, or direct labour. It doesn't include indirect overheads like rent, marketing, or admin salaries, which are deducted later to reach net profit.
What's the difference between gross profit and net profit?
Gross profit only deducts the direct cost of goods sold from revenue. Net profit goes further, deducting all other business costs too, such as rent, salaries not directly tied to production, marketing, and interest, as well as tax. Gross profit shows how efficiently you produce or source what you sell; net profit shows what's actually left as bottom-line profit.
What's a good gross profit margin?
It varies hugely by industry. Retailers and wholesalers often run gross margins of 20-40% because they resell goods with relatively high direct costs, while service businesses and software companies can see margins of 60-90% or more, since their direct costs are much lower relative to revenue. Compare your margin to others in your specific industry rather than a single universal benchmark.
What counts as cost of goods sold?
Costs directly tied to producing or acquiring what you sold: raw materials, components, stock bought for resale, and direct labour involved in production. It generally excludes indirect costs like office rent, marketing, admin staff, and interest, which are business overheads rather than a direct cost of the goods themselves.
What's the difference between gross margin and markup?
Gross margin is gross profit as a percentage of revenue (selling price); markup is gross profit as a percentage of cost. They describe the same £ profit from two different bases, so they're never equal except at 0%. For example, a £40 profit on a £100 sale (with £60 cost) is a 40% margin but a 66.7% markup on that £60 cost. This calculator shows both.
Can gross profit be negative?
Yes, if your cost of goods sold is higher than your revenue, meaning you're selling at a loss before even accounting for overheads. This calculator flags it as a gross loss if your figures work out this way, which is usually a sign to review pricing or supplier costs.
Methodology and assumptions
This gross profit calculator assumes:
- Gross profit is revenue minus cost of goods sold, with no adjustment for returns, discounts, or other revenue deductions you haven't already factored into your revenue figure.
- Cost of goods sold includes only direct costs, not overheads or operating expenses, so this figure is not the same as net or operating profit.
- There's no tax-year dependency here: this is a plain accounting calculation, not a UK-specific tax rule, so it applies equally to any period or currency (figures are simply labelled in £).
- All figures are rounded to the nearest penny.
For UK Corporation Tax on your company's overall profit, see the Corporation Tax Calculator.
Sources
Further guidance referenced on this page:
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